Top Picks 2016: Bank of America

01/15/2016 7:00 am EST


Briton Ryle

Editor, The Wealth Advisory

The days of zero interest rate policy in the US are gone; and there are a select few stocks that will fare even better under a positive interest rate policy than ever before, asserts Briton Ryle, editor of The Wealth Advisory.

My Top Pick for conservative investors, Bank of America (BAC), is perpetually undervalued and has more upside for its dividend than just about any stock I can name.

The bank has trimmed all the fat and conformed to all of the new legislation and is ready to rip into the new year with stellar gains for savvy investors.

From a valuation standpoint, this is a company that’s made huge improvements to put itself ahead of the pack.

It’s inching towards closing the gap to book value even as book value increases, now sporting a 0.8 P/B ratio and a book value of $22.44.

Also, it has a forward P/E of 10.6 compared to an average of 18.5 for the S&P 500.

On top of that, once the Fed’s stress test results are released in March, the dividend should be at least 50% higher. And that makes the downside here quite limited.

Bank of America posted stellar earnings in the most recent quarter; it netted $0.37 a share on $20.8 billion in revenue and beat estimates by a solid 12%.

Also, BofA recently settled the litigations related to mortgage-backed securities in 2009 and 2010.

I don’t expect BAC to trade much higher without a dividend hike. But, I’ve got a 12-month price target of $24 in anticipation of continued solid execution and an increase of 50% or more in distribution rates. In my view, accumulating shares on dips is a very good idea.

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